On June 13, 2013, a hearing examiner recommended that the Virginia State Corporation Commission (SCC) reject an application by Dominion Virginia Power (Dominion) for a Certificate of Public Convenience and Necessity (CPCN) to construct, own and operate an approximately 1,358 MW natural gas-fired combined-cycle generating facility in Brunswick County, VA. The examiner concluded, after a lengthy and contested hearing, that Dominion failed to adequately consider third-party market alternatives to its proposed ratepayer-funded investment in the Brunswick project.

On November 2, 2012, Dominion submitted its request for a CPCN for the Brunswick project, including a request for an incentive return on equity (ROE). Virginia law permits utilities in the state to obtain a 100 basis point enhanced ROE for the construction of combined-cycle combustion turbines, such as the Brunswick project.

Dominion was not required under Virginia statute to conduct a formal, competitive Request for Proposal process as condition of obtaining a CPCN to construct its own generation plant. However, the SCC had previously held that evidence relating to the costs of competitive alternatives would nonetheless be relevant in determining the reasonableness of a proposed Dominion generation investment. In addition, when the SCC approved Dominion’s 2011 Integrated Resource Plan in October 2012, the SCC directed Dominion to “adequately consider” third party market alternatives to its self-build proposals. The primary issue litigated at the hearing was whether Dominion met the “adequately considered” standard as set out by the SCC.

The hearing examiner concluded that Dominion’s “decision not to affirmatively explore actual, third-party alternatives to the Brunswick Plant . . . calls into question the necessity and prudence of the Brunswick Plant,” and recommended that the SCC deny Dominion’s application. The SCC is expected to rule on the hearing examiner’s recommendation by early August.

In December 2012, after Dominion submitted its CPCN application, the Virginia Attorney General issued a report sharply criticizing the ROE enhancement adders such as that requested by Dominion in its application. The reported concluded that those adders provide utilities with an incentive to construct their own generation even if there are less expensive options available from independent electric generators.1 Largely as a result of the Attorney General’s report, in February 2013 the Virginia legislature passed legislation requiring a utility seeking an ROE enhancement adder to demonstrate that it has considered and weighed alternative options to its self-build proposal.

1 REPORT OF THE OFFICE OF THE ATTORNEY GENERAL ON RETURN-ON-EQUITY ENHANCEMENT ADDERS OF THE 2007 VIRGINIA ELECTRIC UTILITY REGULATION ACT (Nov. 2012) (the “ROE Report”).